Debt Financing Nears Completion
- Target date for a decision by the German government Inter-Ministerial Committee (IMC) for German ECA cover - 14 December 2017;
- Lender's due diligence - final stage;
- Successful due diligence with no fatal flaws;
- Expert Opinion report for Euler Hermes nearing completion; and
- Finalisation of EPC contract.
Analyst Comment: Whilst the progress of debt financing has been slower than originally anticipated, it appears these negotiations are now drawing towards a positive conclusion. The major reason for the delay was due to a change in EPC contractor earlier this year (SMS Group).
In the long run it appears the change in contractor may have been a blessing in disguise, given SMS Group's long standing relationship with the German debt providers and the export credit agency, as well as their vast experience in building facilities similar to Altech's planned HPA project.
Catalysts: The company has highlighted a number of short term milestones that investors should be aware of in the coming months. These include:
- Mid October - All due diligence consultants to submit final reports to the expert opinion consultant;
- Mid October - finalise the EPC contract price;
- 9 November - expert opinion report submitted; and
- 14 December - decision on the offer for export credit project finance cover.
Valuation: We maintained our valuation at $0.55 / share (SP $0.17 / share). We kept all assumptions in-line with previous guidance despite the company flagging capital costs will increase due to a change in the processing facility specifications, as well as a deterioration of the Euro/USD exchange rate.
It is likely that any increase in capital expenditure will potentially be matched by an increase in the size of the debt facility. This should result in only a minor change on a valuation per share basis, given future dilution will remain similar and the likely favorable terms that will be offered by the credit agency (low interest rate, long term repayment profile). We will review these assumptions once debt terms are offered.
In addition, our current valuation assumes an additional 40% discount to account for project development and financing risk. Once financing has been finalised this discount will be reduced.
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About Altech Chemicals Ltd
HPA is a high-value, high margin and highly demanded product as it is the critical ingredient required for the production of synthetic sapphire. Synthetic sapphire is used in the manufacture of substrates for LED lights, semiconductor wafers used in the electronics industry, and scratch-resistant sapphire glass used for wristwatch faces, optical windows and smartphone components. There is no substitute for HPA in the manufacture of synthetic sapphire.
Global HPA demand is approximately 25,315tpa (2016) and demand is growing at a compound annual growth rate (CAGR) of 16.7% (2016-2024), primarily driven by the growth in worldwide adoption of LEDs. As an energy efficient, longer lasting and lower operating cost form of lighting, LED lighting is replacing the traditional incandescent bulbs.
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Altech Chemicals Ltd